Sunday, July 22, 2007

Adjusting the Adjusted NYSE TICK

As readers know, I used an adjusted figure to assess the day's TICK readings (the number of NYSE stocks trading at their offer prices minus those trading at their bids). Specifically, I cumulate each one minute's average TICK reading (high-low-close) after subtracting from it the average TICK level of the past 20 trading sessions. In this way, we see how short-term market sentiment for today compares with recent market history.

With the abolition of the uptick rule, short sellers can now hit bids rather than wait for upticks for their transactions. The net impact, it appears, has been a downward shift in the distribution of NYSE TICK values. From March 1, 2007 through July 2, 2007, the average raw NYSE TICK reading was 253. Since then, the average has been 21.

As I mentioned earlier, if this downward shift is attributable to the end of the uptick rule and its impact upon the location of trade, then we should see a similar shift in the distribution of the Dow TICK (TIKI). Sure enough, from March 1st through July 2nd, the average Dow TICK reading was .37. Since July 2nd, it has been -.53.

Eventually, once we have 20+ trading sessions under the new trading regime, the adjusted TICK will automatically adjust itself. In the interim, I am simply trading with an assumption of a zero mean for the TICK. If, as the trading day evolves, we chart the one minute TICK and have more area above the zero line than below, that will indicate net positive sentiment. If, as on Friday, we have more area below the zero line than above, that will suggest net bearish sentiment.

Most important, I will continue to track shifts in the distribution of the TICK from one time period of the day to the next. These shifts will remain important clues of institutional sentiment whether they're starting from a positive mean or from zero.

3 comments:

..... We've been going over how the elimination of the uptick rule for short sales on July 6th has impacted the TICK indicator, and so our Cumulative TICK remains in the same kind of "oversold" area it has been in for the past week. The put/call ratios we monitor intraday also hit extremes, but we often get wacky put/call readings around expiration and they're not necessarily reflective of trader sentiment.-Unquote

Does it mean that around Expiration Day for options, for example, the TICK reading is not reliable?

Great question. I haven't found any systematic bias to the TICK on expiration days. And, FWIW, I don't think Friday's equity option bearishness was a function of expiration only. I'll post about that tomorrow AM. Thanks--

Awesome blog/website/book you are a true giver and I give you a sincere thanks.

I am having a problem calculating the Adjusted NYSE Tick. I know I won't get the exact numbers that you have due to data issues and timing but when I look at the chart of mine and your they don't look the same. Here is what I have as my formula.

1. average the high/low/close on the 1 min tick bar 2. make a 20 minute average of #13. subtract #1 from #24. cumulate #3

What I have tends to oscilate around 0 and looks more like an overbought/oversold indicator like ROC. Could you point me to where I have my formula wrong?

Although after watching what I have on the screen it seems to be a decent way to gauge buying/selling strength.

About Me

Author of The Psychology of Trading (Wiley, 2003), Enhancing Trader Performance (Wiley, 2006), and The Daily Trading Coach (Wiley, 2009) with an interest in using historical patterns in markets to find a trading edge. I am also interested in performance enhancement among traders, drawing upon research from expert performers in various fields. I took a leave from blogging starting May, 2010 due to my role at a global macro hedge fund. Blogging resumed in February, 2014, along with regular posting to Twitter and StockTwits (@steenbab).